The best opportunity of a lifetime to buy FTSE 100 shares is coming. Among the cream of the crop is the 8% yield dividend share I’ll look at today. It has three major things going for it: strong fundamentals, an extremely attractive valuation, and the cash flow to support its huge dividend payment.
Analysts at investment house Jefferies wrote in a 21 March report that “indiscriminate selling” has made some high-quality shares unfeasibly cheap. Their best-buy list includes shares that are “practically stealing” at current prices.
They include Amazon — whose stock will rise as fewer people go out to shop — US biotech giant Gilead Sciences, and the largest defensive play in America, McDonalds.
These are “high quality names that investors would want to own across a [down] cycle,” the report said.
Best buy FTSE 100 shares
Of the handful of FTSE 100 shares to make the list is one that is now trading at a cheap price-to-earnings ratio of 7 times earnings. It has an 8.6% yield at last count. I’m talking about British American Tobacco (LSE:BATS). Investors should avoid its biggest rival Imperial Tobacco, in my opinion, because BATS has the more attractive long-term outlook.
CEO Jack Bowles said in full-year results released on 27 February that “strong operational performance” was the reason why his firm had managed to deleverage its balance sheet. I’m certain that debt-heavy companies will fail in this unprecedented market crash.
At a time when high-yield FTSE 100 giants like Royal Dutch Shell are slashing billions from their budgets and others suspend or slash their dividend payouts, BATS has increased its own offering by 3.6% to 210p per share. This comes with a 1.5 times dividend cover, too.
Revenue was up also 5.7% in 2019. Looking ahead, Bowles said that even with the market disruption he was confident of a 9% earnings growth increase in 2020.
Income coming in
Income investors are having a torrid time right now. Monday, 23 March, saw more popular FTSE 100 companies suspend or review their dividends. They include broadcaster ITV, bus operator Stagecoach, and the Screwfix and B&Q owner Kingfisher.
I don’t have to tell you that a near-30% discount in the British American Tobacco share price compared to two months ago seems like a big opportunity. That 8%+ yield will compound nicely as share prices recover.
As I wrote a few weeks back, the best time to buy FTSE 100 shares to make you money in the long term is at the point of maximum pessimism. I don’t think we’re quite there yet. So I’m waiting for markets to stabilise before putting money down. Central banks are throwing the kitchen sink at the coronavirus-hit economy right now. The US Federal Reserve has just committed to unlimited bond-buying to shore up shaky markets.
But when we start to see the green shoots of recovery, this 8%+ yield UK dividend share is right at the top of my list.